In July in Is AMD Going to Spin-Off their Manufacturing we noted foundry industry observers were commenting AMD were going to have to spin-off their fabs to stay viable. Later we noted in AMD's Asset Smart Strategy: What is it? AMD had adopted an asset-smart strategy. Although this strategy was not clear it was predicted that AMD meant they would be dumping their fabs. Well, its come to pass. AMD will no longer manufacture their own chips. According to the New York Times (NYT) AMD are going to split into two companies. One will focus on chip design and the other on manufacturing. According to the NYT:
Advanced Micro Devices said Tuesday that it would split into two companies — one focused on designing microprocessors and the other on the costly business of manufacturing them — in a drastic effort to maintain its position as the only real rival to Intel.
In addition, the company said two Abu Dhabi investment firms would inject at least $6 billion into the two firms, mostly to finance a new chip factory that A.M.D. planned to build near Albany, N.Y., and to upgrade one of the company’s existing plants in Dresden, Germany.
A.M.D., based in Sunnyvale, Calif., makes graphics, computer and server processors. It will own 44.4 percent of the new entity, which has been temporarily named the Foundry Company, a reference to the technical term for a chip factory. The Advanced Technology Investment Company will own the rest.
Advanced Technology, which was formed by the Abu Dhabi government, has promised to put up $2.1 billion immediately and contribute $3.6 billion to $6 billion more to build or upgrade chip fabrication plants, also known as fabs. A.M.D. said the two companies would share voting control equally.
The Mubadala Development Company, an Abu Dhabi company that bought 8 percent of A.M.D. in November, will pay $314 million for 58 million newly issued shares, increasing its stake in the presplit company to 19.3 percent. It will also get warrants to buy 30 million shares. A.M.D. stock closed Monday at $4.23 a share, down 30 cents.
“We generally believe this deal is a game changer for the industry,” said Khaldoon Al Mubarak, chief executive of Mubadala. “It’s bold, and I think it’s smart.”
Coming up with the billions of dollars needed to construct each new chip plant has proved to be a huge drain on A.M.D., the perennial No. 2 to Intel in the market for microprocessors, the powerful chips that control the functions of personal computers and the larger corporate machines known as servers. As of June, A.M.D. reported that it had $5.3 billion in debt and just $1.6 billion in cash.
With the constant need to devise smaller, faster, more energy-efficient chips to keep up with Intel, A.M.D. was forced to turn to outside help.
Well this turn of events was certainly not unexpected. AMD have been smashed around for the better part of three years in a ruthless price war with Intel. They are on the ropes and there is nowhere to go except to be broken up and allow the latent value in either firm to be unlocked somehow.
This will however have an impact on the global semiconductor industry. A new foundry provider in these dark times will increase the competitive environment in the pure play foundry business and smaller competitors may feel the pinch of it. I suspect TSMC, the world's pre-eminent pure-play foundry, will not be effected initially but they certainly cannot ignore the emergence of a new player in the game.
So why is this piece titled "AMD Loses Their Manhood"? The NYT answers (emphasis added):
The split, which has been in the works for more than a year, did not come easily to A.M.D. According to company lore, A.M.D.’s co-founder and longtime chief executive, W. J. Sanders III, known as Jerry, once remarked that “real men have fabs.”
Under the deal proposed by A.M.D., the company would retain many of the traditional benefits of fabs, since part of Foundry will be dedicated to serving A.M.D. and will remain in close communication with the company’s engineers.
“We feel like we’re still pretty manly at A.M.D.,” Mr. Meyer said. Noting that Mr. Sanders made his quip over a decade ago, he added, “Frankly, the math has changed.”
Welcome to a whole new semiconductor landscape, the future will be interesting.
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